The cash-flow conundrum (it’s more interesting than it sounds)

The cash-flow conundrum (it’s more interesting than it sounds)

Money | Posted by - November 1, 2012 at 3:33 am

When I was in business school, I heard the saying "cash is king" in almost every finance class. I still hear it, any time I meet with my banker. "It takes money to make money" is another overused phrase.

But there's a reason they're so popular. They ring true. This has been my most financially successful year, and it's also the first time I've had to worry about cash flow.

I bought my first home a few months ago. I fell in love with the place, but it was partly a business decision. The property came with three parking spots, two of which I planned to sell at $20,000 a pop. I pulled the trigger. I made verbal agreements to sell the two spaces.

Little did I know the lawyers had drawn up an Agreement of Purchase and Sale in such a way that I couldn't close the parking deals. Now I'm stuck with $40,000 in unplanned real-estate holdings.

You might argue that's a good thing. That in a volatile market, real estate is a smart investment. I don't see it that way. I'm not a fan of tying up cash in real estate. My two companies, Oxford Beach and RoyalPak, have generated far better returns on investment than real-estate indicators.

I could put that $40,000 to greater use, never mind the psychological implications associated with a shrunken bank balance. The sale of two parking spots would have netted me enough cash to avoid that fate.

At RoyalPak, as we align ourselves with big retailers and large industry players in the cleaning-products space, we need to hire more temporary staff and purchase a greater supply of raw materials when new orders get placed. Occasionally we require additional equipment.

You hear a lot about how cash flow gets tougher to manage the faster a company grows. I can speak to that with first-hand experience. Our existing, smaller customers tend to pay in 30 to 45 days. The bigger players are demanding receivables in the 60- to 90-day range. The more money comes in, the faster it goes out.

At Oxford Beach, 2012 has delivered partnerships with several corporate clients on the agency side of the business. And we've tripled the number of special-event brands we own and execute. It's all good news, of course, but it's resulted in a significant payroll increase. And now that we're planning up to a full year in advance, venues are demanding deposits when we sign contracts.

Even though profit has doubled, it seems like there's never any cash in the bank and we're drawing down on our line of credit.

A limited amount of cash shouldn't stop you from being an entrepreneur. Then again, it doesn't hurt. That's the "takes money to make money" part.

Tags: money, work, billy hennessey, manage, growth, entrepreneur, capital

darci que
November 4, 2012 at 1:11 pm

omg! what a great post! i identify with your story completely.i'm just a tiny business compared to most and i make decisions to grow,sometimes things happen i didn't count on and i'm back to square one.i'm afraid of running out of money! i have overdraft but refuse to use it.i spend my "quiet"time freaking out about cash flow! i do all my work from home- i'm an artist/illustrator/publisher and have a beautiful but really old home.if i didn't have taxes which keep going up and problems an old house brings with it and a daughter in higher education-another money sucker-then i'd be okay! your blog makes me realize this is what being an entrepreneur means! thankyou and i'm going to keep fighting cause it's worth it!

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